Whilst record numbers of new companies are being registered in the UK every year, it is said as many as one in five new businesses fail. Sadly, it often comes down to poor decision-making or simply a lack of knowledge and/or experience in crucial areas during the early days.
This blog outlines some of the stumbling blocks you might face in your first year as a new business owner, including practical tips for ensuring you maintain a steady grip to give your startup its best chance of success.
1. Have a business plan in place. A predictable tip, but so vital! Writing a business plan is essential for the launch and growth of any venture. It’s a document where you detail all the future plans and predictions for your business. It will explain your ideas, map out how they’ll be put into practice and provide relevant information including the business details, management plan, operating plan, marketing and sales strategy, financial projections, and operational and team specifics. It’s a document that shows you’ve ultimately decided that your business is viable.
2. Keep it lean. It’s a wise move to keep your startup business as lean as possible in the early years. The ‘lean startup’ concept offers a way for entrepreneurs to test their vision continuously, to adapt, and then adjust before it’s too late. When startup businesses invest their time into cyclically developing and refining products/services to meet the needs of early customers, the business can reduce market risks and sidestep the need for large amounts of initial project funding and expensive product launches and financial failures. Those committed to a lean startup approach believe constant feedback yields better results. While it’s important to have a structured business plan in place, it is also important to consider flexibility within it should data/results/your target market be telling you something different to what you envisaged.
3. Get your accounting in order from day one. Get this right at the beginning and you’ll avoid a series of headaches down the road. Register your business, set up a business bank account, look at the affordability of working with an accountant, as well as using cloud accounting software. Your cash will be organised from the get-go, helping you with tax preparation/filing as well as monitoring and measuring financial activity.
4. Choose the best small business accounting software. The right fit will save you a substantial amount of time, so you can focus on other areas of your business and doing more of what you love. Here are some considerations to bear in mind when researching options.
5. Understand how much money your business will require. Insufficient operating funds is a common money mistake made by failed businesses. It’s important to understand cash flow and not underestimate how much money you will need to get the business started. You need to know not only the costs of starting your business but the costs of staying in business. Many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs. Our startup business costs calculator is a useful place to start.
6. Sharpen up on your basic bookkeeping skills. When starting up, we appreciate you might not be able to afford an accountant’s monthly fees. You might need to do your own bookkeeping, and consider paying an accountant to take care of more complex tax matters. Once your business is more established, you might choose to sign up to a fixed monthly fee arrangement with an accountant, so you can get on with other things. This might come to an end once you start to take on staff, possibly including your own accounts person. In the meantime, read up on bookkeeping shortcuts for an easier life.
7. If you can afford to, seriously consider using an accountant. If you don’t have a background in finance and are short on time, it’s worth considering employing an accountant, who can:
- Get your business off to a flying start by providing sound advice on the most appropriate legal structure for your business (sole trader, partnership, limited liability partnership or private limited company)
- Also advise on the most robust financial management systems to put in place, the best accounting software and tailored tax advice so your business can minimise its tax bill and maximise earnings
- Register the business for you
- Assist with your business plan
- How to apply for a small business grant and advise you on sources of funding and setting your prices
- Help you with your tax admin, returns and payments, to ensure your legal compliance
- Provide personal tax-planning advice
- Look after your payroll
- And more!
It can be difficult knowing when to hire a small business accountant. If you have a limited budget, why not schedule a meeting with a recommended accountant for their view on what they could advise within your monthly budget, or whether their expertise could be accessed for specific business requirements before launching, or as and when they arise.
8. Monitor financial performance. It’s imperative to keep an eye on your financial statements, including your balance sheet, profit and loss account, and cash flow forecast. And if you’re worried about being confused, we’ve written some tips on understanding key business financial terms including gross profit, turnover, working capital etc.
9. Ensure you have a budget and review it monthly. “Creating an effective budget starts with having worthy data. If you are using accounting software, make sure there are no items waiting to be categorised, all outstanding sales invoices are indeed outstanding, and check you haven’t got duplicate purchases. Check that the bank balance on the software matches your bank account balance.” comments Tamsyn Jefferson-Harvey in her budgeting tips blog. You can then create a headline business budget, take a look at your overheads, calculate your required sales, create a cash flow forecast and establish 3-5 Key Performance Indicators (KPIs). Reviewing these at least monthly is crucial to ensuring your budget and forecast remain relevant and useful.
10. Keep an eye on cash. For many small businesses that sadly fail, it’s not a lack of customers or poor-quality products or services that are responsible for their demise – it’s simply a lack of cash. Even the most successful businesses can quickly find themselves in trouble if their cash is tied up in late or unpaid invoices and they can no longer pay their bills. Sound financial management is at the heart of every business. Keep track of your cash flow every month. If your business is brand new or deals predominantly in cash, such as a restaurant or a shop, you may even need to track your cash flow on a weekly or even a daily basis.
11. Stay frugal. Cash flow can be tricky in year one. Think about ways you could save money when funds are low – every little helps. Could you run your business from home and cafés or choose a flexible co-working space instead of leasing an office? Bring in packed lunches rather than eating out? Do you really need to print something out? It all adds up.
12. If you can, re-invest some of your business funds. When the profits start rolling in, it can be tricky to know what to do with those funds. We’ve written a guide all about how to reinvest business funds, detailing how to get on the front foot and start making serious investments – from developing your products and processes, to expanding your team and investing more in marketing.
13. Improve your productivity. Make the minutes count with our 32 productivity hacks.
14. Learn from a mentor. Is there someone you can talk to who’s been before you, experienced the trials and tribulations of starting a business, and wouldn’t mind sharing their learnings and advice? Here are three easy places to find a mentor for your business.
15. Proactively take time out for self care. When it’s your own business, it can be easy to justify overtime. But don’t let that be to the detriment of your physical and mental health. Not taking time out to relax and restore can have a negative impact on your ability to work smart, be productive and get a new take on things. Don’t leave your health until burnout beckons. Add some self care exercises to your daily to-do list.
16. Sharpen up your business skills. Many turn their hobbies into a business without any prior business training or experience. There are numerous ways you can increase your small business knowledge, from online finance courses to free tools, guides and resources such as our very own self-employed tax calculator, digital marketing on a budget ebook, a marketing strategy template and much more. Never stop wanting to learn as a business owner – invest in your education as part of your business strategy as it will be the gift that keeps on giving. You can also find out about important tax changes for the current tax year.
17. Know who you’re marketing your business to. Without an effective marketing strategy in place, even the best business ideas for 2022 are unlikely to thrive. Unfortunately, marketing isn’t a straightforward path for all businesses. For the best results, you need to ensure you’re targeting the right customers and communicating what makes you different (ie your USP). We have a library of marketing and sales guides to help you coordinate a strategy that will give your business the spotlight it needs to gather momentum in its first year. (And, if you want to keep thing cost-effective, here are 43 cheap marketing ideas).
18. Keep a close eye on your target market. Keep a close tab on your market and your customers’ changing needs on an ongoing basis. You might need to update your business plan and reconsider your products/marketing strategy if a big change happens – it could be as big as economic changes or a natural disaster. You need to be prepared with an agile business plan. The same approach applies to new platforms on the market – can you reach your target market with them? Don’t let them go unnoticed.
19. Understand your business inside out. You should be able to persuasively introduce yourself, your company and your product within 30 seconds (your ‘elevator pitch’!). This is a key networking tool so you’re able to take advantage of any marketing opportunities as they arise. It can help with acquiring new contacts, clients, partnerships, funding and exposure.
20. Bring bags of energy, but work smart. Send any self doubt you might have on a sabbatical, because this first year of your business is going to be a roller coaster that’s fuelled by passion and energy. But make sure to keep your business plan close to hand, as sometimes our passions can run away from us. There are some fantastic free resources available to inspire and energise your business in 2022, but keep in mind that your time is valuable, so ensure you apply it productively.